The Year Cycle Is a Myth -- Why it Can't Work - RaychelSnr's Blog

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The Year Cycle Is a Myth -- Why it Can't Work Stuck

Posted on July 25, 2011 at 02:42 PM.

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A couple of years ago, I wrote a deeply flawed take on whether a two year cycle for sports games would work -- it was so embarrassing I have stricken it from the official record. While I applied some rough math to the problem, my numbers were deeply flawed and thus my conclusions were way off.

So what I want to do today is to simply apply some 5th grade math to the problem to demonstrate whether a two year cycle is the answer.

A LOT of people on Operation Sports have the theory a two year cycle with a roster update in between games would work. So I understand I start this article by fighting a bunch of preconceived notions about the whole thing. Thus a note on the methodology here, we're going to apply a few different philosophies around the two year cycle and show the results. By all accounts, downloadable add-ons will never be downloaded by more than 50% of the people who own a game, this is a gaming business fact. (If you believe one study last year, half of gamers didn't even know about DLC). Secondly, the price will greatly impact how many people are willing to download an update -- this is just pure economics. Third, offering roster updates will do one thing -- it will disable community roster sharing.

There's no other way around that pink elephant in the room -- if you want a two year cycle you have to give up community roster creation and sharing. Ditto for any other sharing features. The two year model loses all chance of being profitable if you can bypass the $10 update for rosters which are current and free from community members. Also, constant updating rosters might have to go bye-bye as well, at least free ones. Thus, think about that one for each game (namely NCAA) before you decide you want a two year cycle. Otherwise, the economics simply don't work and the two year cycle is asking gaming companies to bankrupt themselves.

So let's dive into the math now. We're going to call our game -- Game A. We're also going to simplify things to pure sales and revenue. We'll discuss costs and whatnot later, but for now let's just get a base layer down.

Today's cycle calls for one game a year at $60. Let's assume sales are going to remain flat both years, which typically doesn't happen. But for the sake of this, we're going to skew our numbers towards the two year cycle:

Year One and Year Two - 1 million games sold each year (60 million x 2) = $120 million in revenue.

Ok, now let's do the every other year cycle. We'll do a roster update at $20 in year two, one at $10, and one at $5, with the amount of people willing to buy this update going from 15% for $20 to 40% for $5. Most studies have shown (as the Destructoid article above) that the number of gamers who even buy DLC is in the 15-20% range. Thus, these numbers are almost certainly highly inflated to the benefit of the two-year cycle. Also, some additional games would be sold in year two, but by all accounts -- a 16 month old game on a shelf at a reduced price would not sell all that well. But just to prove a point, we'll keep the game at $60 with the game still selling 25% of what it did in year one -- something which isn't very likely on either number just given sales patterns of the industry since the beginning of time.

Plan A
Year One: 1 Million Games Sold = $60 million
Year Two: 250,000 Games Sold + 150,000 $20 Download Packs = $18 million
Two Year Total: $88 million ($32 million shortfall)

Plan B
Year One: 1 million games sold = $60 million
Year Two: 250,000 games sold + 300,000 $10 Download Packs = $18 Million
Two Year Total: $88 Million ($32 million shortfall)

Plan C
Year One: 1 million games sold = $60 million
Year Two: 250,000 games sold + 400,000 $5 download packs = $17 million
Two Year Total: $87 Million ($33 million shortfall)

While simplistic, this basic math shows the two year cycle would, under the very best conditions given current market trends, result in a revenue shortfall of around the ~25% mark. Ask any business in America how well they'd operate with a 25% haircut in revenues and see what they'd say (read: Going out of Business sales everywhere).

You can do a lot to the above scenarios to try to balance the $33 million shortfall, including increasing overall sales both years in a two year cycle because the game would be better in quality -- but could game sales double under that circumstance? If you can double sales over your yearly cycle, you'd be able to instantly match the revenue in the year to year model. The sad fact is though, you likely will not see game sales double under any realistic model over the current release calendar.

Of course, doubling of sales of yearly titles would mean games like FIFA and Madden would have to sell approximately 12-14 million games per release -- which has never happened in the series history. In fact, even in the most ambitious model, you could say Madden and FIFA sales might see a 45% increase under various circumstances. Even in a model where you plug in such numbers you'd end up with a $10 million shortfall or more!

Another argument which could be made is sports games are held back in overall sales by their annual release model and an every other year model would increase hype and sales to levels seen by behemoths in other genres. While this is pure speculation (most every discussion about this is) refuting that point can be made by simply looking at other genres which release every year if they can still put out quality offerings. Also, you can make just as compelling of an argument that by developing every other year, you open up the floor to a competing company to offer something which would have a very negative effect on sales. A well crafted Backbreaker 2 released in between editions of Madden 12 and 14 right as the NFL Season launches in 2012 would put a huge dent in follow on year two sales of Madden.

What is clear about the two-year-cycle business model is that some combination of games sales doubling + a sizable chunk of the fan base buying a roster update has to happen. Anything short of that ends up in gaming publishers seeing the year to year cycle being better for the companies bottom line.

The simple truth is: if the every other year model was deemed to be more profitable, then it would've been pursued by everyone in the industry already.

But let's get out of revenues and talk expenditures.

First off, sports games operate with yearly licenses. You'd have to pay a fee every year to publish a game every two years. If you think sports leagues are going to take a haircut on their license fees because a developer wants to develop every other year instead of the typical yearly release cycle you are kidding yourself. Simply put, your licensing costs will remain constant as they are now.

On the same token, your development costs -- for the every other year model to achieve the results of double the quality in double the time -- must remain the same. So basically, even in the best model possible, you will end up in a situation where you are paying the same people the same amount to produce one game in the same period they used to be producing two games.

One place where positive effects would seemingly be had is in advertised and game printing. You'd be printing and advertising for one game instead of two. However, in order to keep sales up -- especially as you get beyond month 8 or 9 of a game -- you'd have to keep advertising or sales will go through the floor. The exact amount is tough to figure, but ad budgets would have to be bigger initially to try to spur more sales and then there'd be a residual budget through the entire 24 month cycle in order to keep the project going.

Of course, this article is far from being the be all end all examination of the every-other-year release cycle but what it does show is a lot of things which have never happened in the gaming industry would have to happen in order for the model to be profitable in sports gaming. I've long been a proponent that quality sports games are increasingly tough to develop in a twelve month calendar year, but I also cannot be blinded by the simple fact that sports games can't operate under any other method.

We will never see an every other year model with any major sports game on the market in today's market.

Comments

# 16 tril @ Jul 26

youre data is flawed. you didnt include potentially new devlopers introducing a competeing sports tiitle in the in between year. thats where the existing sports titles will lose market share.

other than costs can be made by reducing the work force in the non release year. and ramp up when its time to go in full production mode.
how much staff does a comapny need to do a roster update.

In addition I beleive research and development does operate more on a 2 or more year cycle.
some features take years to implement.

# 17 RaychelSnr @ Jul 27

Quote:


	youre data is flawed. you didnt include potentially new devlopers introducing a competeing sports tiitle in the in between year. thats where the existing sports titles will lose market share. other than costs can be made by reducing the work force in the non release year. and ramp up when its time to go in full production mode. how much staff does a comapny need to do a roster update. In addition I beleive research and development does operate more on a 2 or more year cycle. some features take years to implement.

I'm honestly not sure what you are trying to argue here. Your first point would be very negative towards any title doing an every other year cycle. Thus more money would be lost. Your second point would also destroy the point of a two year cycle since you would do it to improve overall game quality from year to year. Otherwise, you might as well develop every year. R&D Costs would be neutral at best. It sounds like you are trying to argue for a two year cycle, but the cases you make are actually very negative in the context of a two year cycle.

# 18 tril @ Jul 27

MMChris
Im against the 2 year cycle. I didnt mean to say flawed I meant to say you missed key points. One of them being allowing a competitor to enter the market and potentially steal market share.

And even if they did go to a 2 year cycle, these devloperes would cut costs by, essentially working with a skeleton crew during the off year. ALot can be done in that year with minimal staff.

question would be would these devlopers really invest that year to a full staff devoted to research and development and testing. I doubt that they would.
just pointing out potential Threat and potential weakness in a SWOT analysis. part of the business decision making process.

totally totally in support of your article.

# 19 SGMRock @ Jul 27

Why can't they just throw more Devs and QA testers at the game so that they actually release a better product every year. It seems some of these developers are trying to get by on the bare minimum. The problem is that quality is not as important big businesses like EA as the bottom line. But hay if they put out a quality product as close to release day as possible then they might get more sales?

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